Thu, Oct 11, 2012, 01:00

Inside the world of business

Fota a good bet for investors, so why is Nama keen to sell?

The information memorandum provided to investors by an Irish-led consortium bidding for the Fota Island Resort in Cork throws an interesting spotlight on the sale of assets by the National Asset Management Agency.

The property has a guide price of €20 million and has generated significant investor interest. Nama is believed to have paid €40 million for the loans associated with John Fleming’s property company, which developed Fota at a reported cost of €90 million.

The consortium in question is led by former pro golfer John McHenry and hoteliers Carl and Gerard Hanratty along with Roberts Nathan Corporate Private. They have raised €20 million privately to bid for Fota.

The document confidently predicts that the resort will be sold for more than €40 million after 2019. By that time, the investors will have held the asset for seven years and will be able to pocket the capital gain tax free thanks to a budget provision introduced last year by the Minister for Finance Michael Noonan to stimulate the property market. If everything goes to plan, the investors would double their money tax free after seven years.

Of course, these gains might not materialise and this investment is not without risk. Nonetheless, Fota looks a good bet for any buyer, especially when the economy turns. It made an operating profit of €1.3 million on turnover of €11.9 million in the year to the end of August 2012. The five-star hotel and spa is also just six years old.

Why the rush by Nama to sell now, when property values are so low? Why not hold the asset and sell when the market has turned and a better return can be gained for the taxpayer?

Unfortunately, the State loans agency remains silent on the matter.

' We have let the PMPA happen all over again'

The picture painted of Quinn Insurance Ltd in Leinster House yesterday was of a simple and profitable business model. You set up an insurance company, undercut your competitors, put an inadequate amount of money aside to provide for future claims, and marvel at the profits.

“We have let the PMPA happen all over again,” was how Labour TD Kevin Humphries put it.

Among those giving evidence to the Joint Committee on Finance, Public Expenditure and Reform was the Central Bank’s head of general insurance supervision, Domhnall Cullinan.

Asked how Quinn Insurance could have been allowed trade, he said the Central Bank through the Noughties had been “underresourced by any reckoning”. Asked if he had complained about the lack of resources at the time, Cullinan, who held a lower position in insurance supervision at the time, said he had, and that his complaint had gone up the line. What had happened after that, however, was a mystery to him.

The size of the actuarial team in the Central Bank during the period varied between “zero and two” and outsourcing was not allowed.

According to administrator Michael McAteer, a review carried out of prior year reserves had arrived at the following under estimates: Up to 2006 – €215 million. 2007 – €168 million. 2008 – €289 million. 2009 – €264 million. Total – €936 million. He believed appropriate reserves were now in place. “The historical audited accounts have turned out to not accurately reflect the true financial position [of QIL]”, he said.

Cullinan told the committee the Central Bank had been concerned in 2009 about gaps between the technical reserve calculations of Milliman (QIL’s signing actuary) and PricewaterhouseCoopers (its external auditor). The gap between the two estimates for 2009 was €68 million.

The Central Bank was aware of rumours circulating about QIL, and had been contacted by its UK counterpart, which had shared its concerns.

However this was not the type of hard information, Cullinan said, that would allow the regulator go to the courts.

In March 2010, when the regulator found QIL assets worth €448 million had been used to guarantee Quinn Group debts, the house of cards came tumbling down.

Toyota recall could help Golf

Toyotas latest recall of 36,000 cars in Ireland as part of a 7.4 million vehicle recall worldwide signals more bad news for the Japanese brand. Its the biggest global car recall since 1996, when Ford was forced to call back eight million vehicles to replace defective ignition switches. It also follows Toyotas recall of about 10 million vehicles between 2009 and 2011 over various problems that included potential sticking accelerator pedals. While the issue this time is relatively small – a faulty electric window switch – it arguably dents the image of a brand whose tagline is the best built cars in the world.

Globally Toyota is under pressure from events outside its control. Since 2008 it has had to deal with a strong yen, its supply chains crippled by the tsunami in Japan and floods in Thailand last year, and most recently plummeting Chinese sales as a result of a Sino-Japanese territorial dispute. In Ireland the brand still retains remarkable customer loyalty. Part of that is down to a strong dealer network and a long-established customer base. Despite the bad publicity that surrounds a recall, Irish motorists seem to accept that vehicles with thousands of parts will occasionally encounter problems. What they are more concerned with is that the problem is quickly rectified.

However this year, Toyota is facing a major challenge from Volkswagen, eager to win the bragging rights that come with being the best-selling car brand for the year. With less than 100 cars between the two brands as we limp towards year end, and with VW looking forward to the arrival of its new Golf in December, the recall could make the difference between first and second place.

If there is any positive to be taken from this latest recall its that the bill for the 60-minute repair work on 36,000 cars will be picked up in Japan. Thats a nice bonus for dealers in the quiet period coming up to Christmas.

Quote of the day

It seemed a sensible time for us to lock in interest rates at historically low levels.

- Andrew Reid, director of finance at Cambridge University after it tapped bond markets for the first time in its 800-year history


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Istvan Szekely, the lead European Commission representative on the troika, and Harvard management professor, Robert Kaplan, address Ibec HR Leadership Summi

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